Unit root testing under a local break in trend using partial information on the break date*

Harvey, David I. and Leybourne, Stephen J. and Robert Taylor, A.M. (2014) Unit root testing under a local break in trend using partial information on the break date*. Oxford Bulletin of Economics and Statistics, 76 (1). pp. 93-111. ISSN 1468-0084

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Abstract

We consider unit root testing allowing for a break in trend when partial information is available regarding the location of the break date. This takes the form of knowledge of a relatively narrow window of data within which the break takes place, should it occur at all. For such circumstances, we suggest employing a union of rejections strategy, which combines a unit root test that allows for a trend break somewhere within the window, with a unit root test that makes no allowance for a trend break. Asymptotic and _nite sample evidence shows that our suggested strategy works well, provided that, when a break does occur, the partial information is correct. An empirical application to UK interest rate data containing the 1973 ‘oil shock’ is also considered.

Item Type: Article
Additional Information: This is the peer reviewed version of the following article: Harvey, D. I., Leybourne, S. J. and Robert Taylor, A.M. (2014), Unit Root Testing under a Local Break in Trend using Partial Information on the Break Date. Oxford Bulletin of Economics and Statistics, 76: 93–111, which has been published in final form at http://dx.doi.org/10.1111/obes.12013. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.
Keywords: Unit root test; Breaks in trend; Minimum Dickey-Fuller test; Local GLS detrending; Union of rejections
Schools/Departments: University of Nottingham UK Campus > Faculty of Social Sciences > School of Economics
Identification Number: https://doi.org/10.1111/obes.12013
Depositing User: Eprints, Support
Date Deposited: 06 Apr 2016 08:55
Last Modified: 14 Sep 2016 00:29
URI: http://eprints.nottingham.ac.uk/id/eprint/32660

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